The purpose of an accounting system is to keep records of a business' financial transactions. Traditionally, accounting systems employ what is referred to as a “general ledger” defining a plurality of “accounts”. Each general ledger account has a unique purpose, and each financial transaction is associated with one or more of the general ledger accounts. For example, a typical general ledger will define bank accounts for recording banking transactions, sales accounts for recording sales transactions, and cost accounts for tracking transactions affecting the value of company assets.
One type of transaction employed by traditional accounting systems is an “adjusting journal entry”. The purpose of an adjusting journal entry is to adjust summary accounts in the general ledger system to reflect a change to the summary account. Adjusting journal entries are recorded in what is referred to as a “journal”. The purpose of the journal is to maintain a history of the adjusting journal entries for the purpose of creating an audit trail.
Computers have long been used to automate the process of accounting for financial transactions. Although specific implementations of a computerized accounting system may vary, computerized accounting systems generally conform to the long-established paradigm of a general ledger comprising a plurality of accounts. Typically, the general ledger is implemented as a computer database, with each general ledger account and each transaction being assigned a unique reference number.
In the context of the present invention, the term “report” will refer to any set of data contained in the general ledger database that has been filtered, sorted, and/or formatted for a particular accounting purpose. A report will typically be associated with a specific function or a specific reporting period defined by beginning and ending dates.
Typically, computerized accounting systems employ separate task modules that create or allow the user to create adjusting journal entries for separate specialized business functions. Each task module displays database reports and interface components that facilitate the entry of adjusting journal entries by the user. Task modules typically maintain the General Ledger summary and journal history either through active posting of individual journal records for each business transaction or batch posting of transactions collected and summarized in a single adjusting journal entry.
Examples of common task modules used by conventional computerized accounting systems include Payroll and Accounts Receivable modules. A payroll module will typically adjust accounts related to employee earnings and payments, while an Accounts Receivable module typically adjusts accounts related to product sales and receipt of funds related to sales.
The use of a computerized database to track accounts and transactions greatly reduces the effort required to compile reports for purposes such as state and federal tax accounting, money or business management (controller reports), GAAP reports for a third party financial institution, and the like. Some of these report formats are highly specialized and have little or no use outside of a specific purpose.
The present invention is of particular significance in the context of a small business in which a mix of employees and outside consultants maintain and access a computerized accounting system. In this context, the accounting system is typically maintained and accessed by at least several users having different accounting purposes and different levels of accounting background.
For the purposes of describing the present invention, users of computerized accounting systems will be referred to as operators, managers, and service providers. Operators are typically employees such as clerks and bookkeepers who perform repetitious or patterned data entry and/or reconciliation tasks on a daily basis. Managers are typically officers or owners of the business and have an unknown or low level of accounting expertise. Managers typically do not maintain the accounting system but instead access reports generated by the accounting system for the purpose of making business decisions. Service providers are typically employee controllers or outside consultants such as public accountants that operate out of what will be referred to herein as a “service center”. Service providers typically have access to the accounting system on a periodic basis, often less than daily, for the purpose of generating reports for tax, financing, or other specialized purposes.
An exemplary scenario involving all of these various users would be the purchase of an asset for use by a business. An operator such as a bookkeeper will write a check for the asset using one task module of the computerized accounting system. The task module allows the bookkeeper to identify the appropriate general ledger account, and the system will typically reduce a bank account by the amount of the check and make an adjusting journal entry increasing a cost account to reflect ownership of the asset. A manager may generate a balance sheet report indicating a decrease in the bank account and an increase in the cost account reflecting ownership of the asset. A service provider such as an accountant or controller may subsequently adjust the cost account related to the asset to capitalize tax costs of the asset.
Problems arise when service providers make adjusting journal entries for the purpose of generating two or more specialized reports related to one host accounting system. Conventional accounting systems make it possible to first enter specific adjusting journal entries used only for one given report type (e.g., tax) and/or reporting period.
However, these report-specific journal entries are permanent and cannot be removed; if a report of a second type (e.g., GAAP) and/or reporting period is to be created, entries for the first report type must be cancelled by a matching reversing entry. Then, adjusting journal entries specific to the second report type are entered and the second report created. Entering and then subsequently reversing report specific adjusting journal entries in a host accounting system can be confusing to less experienced operators, and can create problems with report closings.
For these and other reasons, service providers typically do not use the process of entering and then subsequently reversing out adjusting journal entries in a host accounting system. Instead, service providers often use a separate class of software product referred to as “trial balance software”. One example of a trial balance software system is available in the marketplace under the tradename Workpapers Plus.
Trial balance software systems typically can connect to the host accounting system database or can use an exported copy of the host database. Using the trial balance system, the user makes adjusting journal entries into the copy of the database for a particular report type and reporting period. The trial balance software typically further contains features that aid the service provider in the creation of specialized paginated reports.
As with a host accounting system, adjusting journal entries made in a trial balance software system are permanent and may be removed only by entering a separate reversal entry. The reversal process prevents the trial balance system from carrying forward to a later reporting period the adjusting journal entries used in an earlier reporting period.
The need thus exists for computerized accounting systems that conform to conventional accounting paradigms but which allow operators, managers, and service providers to interact more productively with the accounting system.